5/25/11 1. Identify major classifications of inventory. 2. Distinguish between perpetual and periodic inventory systems. 3. Identify the effects of inventory errors on the financial statements. 4. Understand the items to include as inventory cost. 5. Describe and compare the cost flow assumptions used to account for inventories. 6. Explain the significance and use of a LIFO reserve. 7. Understand the effect of LIFO liquidations. 8. Explain the dollar-value LIFO method. 9. Identify the major advantages and disadvantages of LIFO. 10. Understand why companies select given inventory methods. Learning Objectives

5/25/11 Inventory Classification and Control Inventories are asset items held for sale in the ordinary course of business or goods that will be used or consumed in the production of goods to be sold. Businesses with Inventory: or

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5/25/11 Inventory Cost Flow Inventory Issues Illustration 8-3 LO 1 Identify major classifications of inventory. Companies use one of two types of systems for maintaining inventory records — ________ system or ______ system .

5/25/11 Inventory Systems  The perpetual system maintains a continuous record of inventory changes  The periodic system updates inventory records only periodically

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5/25/11 Effect of Inventory Assume that, at the end of 2001, X. Co. neglected to include $1,000 of goods in transit to the company when it performed the annual inventory count. This error went undetected through 2002. What effect would this error have on the Inventory Count Tag Counted by _______

5/25/11 To analyze, use the inventory formula and the balance sheet formula. Note that the asset account in inventory error analysis is ending inventory , and the equity effect is retained earnings , specifically the effect on net income.

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